Time For Yahoo! and Microsoft To Play Nice

It looks like the Microsoft takeover attempt of Yahoo! has finally reach a point were it may in fact start destroying value for both companies. But then again, most mergers usually end up doing just that, so maybe they are just more efficient. Given the move in Yahoo! stock today, it appears that the market thinks a merger is still possible. Word on the street is that the $33 a share number is being thrown around again. Even though I originally felt somewhere in the $31-$35 range was likely, with $33-$35 being what was needed to get the deal done, I figured that was not possible anymore after Yahoo!'s less than stellar Q1 earnings.

Having said that, maybe Microsoft would be smart to pony-up and get the deal done before any more damage is done. Already today I have heard some analysts talking about how extra time will just result in further complications. One such complication is a common technique used by the takeover candidate for fending off the hostile bid - you simply begin worrying in public about the potential anti-trust problems with the merger. Of course, when a deal does get done (assuming it gets done), this will surly be brought up when regulators look at the deal. Another complication with waiting is the patience of the existing shareholders. At this point it is unclear exactly how many original shareholders are left, and how many shares are simply in the hands of the arbs, each of which will certainly expect to get paid. To make matters worse, it appears that many employees inside Microsoft are not excited about the possibility of a Yahoo! merger, not to mention the Yahoo! employees, many who have probably shed some of their shares, at least the shares they control and can sell without offending the higher-ups. Beyond potential job losses, integration of the two different (quiet different) corporate cultures is going to be difficult, to say the least. The number of these like-minded employees, on both sides, that decide to leave the companies will certainly continue to grow.

For some extra insight, Paul Kedrosky at the Infectious Greed blog also has some interesting and funny things to say about the potential merger, along with a link to a detailed analysis of any hostile takeover attempt. Potentially messy indeed.

Tickers: MSFT, YHOO